Gordon Brown today voiced his anger over the "unjustifiable and unacceptable" £693,000-a-year pension of former RBS boss Sir Fred Goodwin.

The prime minister said legal advice was being sought on whether the money could be withheld.

He spoke out after the former deputy prime minister John Prescott condemned Goodwin's "arrogant" refusal to give up the money.

Prescott urged ministers to halt the payout and let the bank chief sue the government through the courts.

Brown said: "The behaviour in the RBS, where very substantial additional payment awards were given, is something that makes me angry and will make the public of the country angry... this is unjustifiable, unacceptable, and we are going to clean up the banks so this doesn't happen again.

"The legal advice is designed so that the public can get money back."

An embarrassing public row broke out between Goodwin and the City minister, Lord Myners, last night over the former chief executive's refusal to give up his pension.

Goodwin insisted ministers had known of his £16m pension pot for months, accusing Myers of threatening him with more bad publicity if he did not hand back some of the pension awarded when he left the loss-making bank last month.

"You highlighted that the absence of such a gesture would give rise to significant adverse media comment," Goodwin wrote in a defiant and combative letter to Myners which explicitly contradicted the government's insistence that it did not know the details of his pay-off.

Hours later, Myners issued a letter telling Goodwin his refusal to reconsider was "unfortunate and unacceptable".

He wrote that he hoped "on reflection you will now share my clear view that the losses reported by the bank which you ran until October cannot justify such a huge reward".

RBS had earlier admitted it made a record-breaking £24bn loss in 2008 and that the taxpayers' stake could rise to 95% after a further injection of up to £25.5bn of government funds.

Today, Prescott told BBC Radio 4's Today programme that Goodwin should not be entitled to his full pension pot, which he is already enjoying at the age of just 50 and has been granted for life. "If he refuses to give it back, the government should take it off him and let him sue us through the courts," Prescott said.

He said it had been an "extraordinary" decision by the former RBS board to award Goodwin the pension and called for the use of "all legal means" to claw it back.

Asked whether he would literally take the action of stopping payment and saying to Goodwin "sue if you dare", Prescott replied: "Yes, I think I would do that.

"The feeling is so enormous: the taxpayer has rescued them. There is billions of pounds involved.

"He's not entitled to this kind of pension – who knew about it or not, you can investigate that later. I believe [we should] take it off him and let him sue in the courts."

Condemning Goodwin's refusal to forgo any of the money, he added: "He has just arrogantly said: 'I'm not going to change my mind.'

"Well, frankly, if that's the stance he's taken, we should be just as arrogant with him and say: 'Fine, we are going to take action.'

"I understand the consequences of that and the difficulties for contract, but we are in unusual circumstances of a major collapse of the whole banking system."

Vincent Cable, the Liberal Democrats' Treasury spokesman, said: "What the government could do is say that if the company had gone bust, which it would have had it not been a bank, he would have been entitled to a compassionate payout of £27,000 a year, and if he does not like that he could sue.

"I don't think anyone has any sympathy for this guy at all. He led the bank to utter disaster. He should be apologetic and contrite.

"Obviously he has no sense of shame and the government should take a very strong line."

But Cable accused the government of whipping up the row over Goodwin's pension as a "smokescreen" to hid its embarrassment over the billions of pounds it was having to pump into failed banks.